Sample — Master Trader Plan for the Week 3-04-17

Of the four broader market indices that we monitor in the letter each week, only the Transportation Index broke below a prior week’s low. The other three indices made the ninth higher weekly low in a row. The maximum number of higher weekly lows in a row over the last several decades has been 10.

While they made a higher weekly low, all three of those indices ended the week close to where they started the week Monday morning. Only the Transportation Index was down from the prior week, but the gain the other three had all came on Monday’s opening gap higher.

Of those four broader market indices, only the NASDAQ 100 was able to close above its opening price, but only slightly.

Momentum slowed last week.  We will see if the markets can make it 10 weeks in a row with higher lows, or if last week’s “running in place” (i.e., opening and closing price is about the same) is the beginning of a pullback within the daily uptrend that will break below the prior weekly low.

   

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Where Are the Markets Headed This Week?

uyers stepped up again last week and did so again on Friday into the close of trading. Friday’s move higher was able to save the week from closing negatively in three of the four broader market indices. As mentioned, only the Transports lost.

However, all of those indices made lower highs from their respective Monday high. That is a very slight indication of weakness, but with sentiment having reached the extreme that it did the week before last, it supports at least a bias of continued slowing momentum and even a break below last week’s low.

Slowing momentum does not mean prices cannot move higher. But a close below last week’s low will put in place a bearish reversal pattern.

The weekly candle that formed in three of the broader market indices and several sectors is known as a Hangman. A Hangman candle gaps higher from the prior candle, drops lower, and then recovers to close in the area of the open.

At Master trader, we do not refer to candlesticks in the typical terminology; remembering 50+ names and their suggestive meaning is useless and subjective.

We simply interpret candles to have one of three meanings: increasing momentum, slowing momentum, or reversing.

The trend of prices — and the location of where one of the three occurs — will increase the probability of the meaning.

We also look at candles as displaying the psychology of investors and traders. For example, the current weekly candle having gapped higher after eight weeks of a continuous move higher indicates excessive bullishness. The opening and close being approximately at the same prices indicate slowing momentum.

Those two points — along with sentiment being at a bearish extreme — means that risk is rising on the long side. However, it has not reversed yet.

A reversal lower and close below last week’s low will be confirmation of the Hangman and the current market internals.

 

 

DOW JONES INDUSTRIAL AVG.

 

 

Above is the chart of the Dow Jones Industrial Average that we review each week.

The week before last, the Dow’s upward momentum slowed to just over a 1/2% gain. Last week’s momentum slowed even further to a minuscule .02% loss, or just over five points. In other words, the Dow closed almost at the same price where it did the week before last.

The slowing momentum is occurring right in the area of Major Resistance (MR).  The reversal is more meaningful because of the location of where it is occurring.

In last week’s Monday letter, we mentioned that one of the bearish scenarios that might occur last week was a move below the Bottoming Tail (BT) that formed. That did not happen; rather, buyers stepped up on a pullback toward it and pushed prices higher Friday, but still below Monday’s high.

A move above last Monday’s high, followed by a move below that BT, would be a confirmed M-Top pattern.

A move below that BT, without making a higher high, would still be short-term bearish since there hasn’t been a violation of a prior BT candle since the move up started at the end of December.

Major Support (MS) is significantly lower, but there is another BT in the 200-moving average (red line) above that MS; that making the 25,000 area a significant reference point within the daily uptrend.

A move and close above the Major Resistance (MR) area just above could increase the odds of the Dow moving up toward the old all-time high.

While that seems unlikely based on what we have reviewed here, we always have at least two scenarios, the bullish one and a bearish one.

Stay Tuned!

 

VIDEO REVIEW OF MARKETS AND INTERNALS

 

New Swing Trading Ideas

Below is a daily/weekly chart of Valvoline Inc. (VVV).

 

Trade:  Under $18.77, consider shorting the stock.

Technical Setup:  Continuation breakdown after Pro Gap down daily, Sell Setup weekly.

Stop Loss:  $19.32.

 

NEW OPTION TRADING IDEAS

Below is a daily chart of Allergan plc (AGN).

We will short Mar (3/15) $135/127 bull put credit spread.  Breakout after failed Sell Setup daily, bullish retest weekly.

ADJUSTMENTS ON OPEN TRADES

A reminder that a Spreadsheet containing the status of all Open Trades — plus results of Closed Trades — are maintained in a document in the Member's Area.  Here is a partial screenshot of the Open Trades:

 

2/25:  AAPL – Bought stock at $175.20.  2/25:  Move Stop Loss $171.37.  Sold Mar (3/1) $177.5 calls for $.80/share to leg into a covered call and reduce basis to $174.40.    2/26:  Rolled Mar (3/1) $177.5 calls to Mar (3/8) $175 calls for $1.48/share to reduce basis to $172.92.

2/26:  ACB – Bought stock at $9.70.   Stop $6.90.

3/1:  AMZN – Shorted Mar (3/8) $1595/1585 bull-put credit spread for $.89/share. Stop Loss: $1,598.88.

2/21:  BRC – Bought stock at $48.16.  2/26:  Move Stop $46.78.

2/29:  CGC – Shorting Mar (3/15) $43/38 bull-put credit spread for $.50/share.  Stop $43.28.

2/27:  EA – Shorted Mar (3/8) $94/89 put spread for $.51/share.  Stop $93.98.

3/1: FISV – Bought stock at $86.33.  Breakout.  Stop $84.49.

3/1:  HUBS – Bought stock at $171.92.  Breakout.  Stop $167.39.

2/19:  INCY – Bought stock at $84.72 and sold Mar (3/15) $87.5 calls for $1.55/share.  3/2:  Move Stop Loss:  $85.38.

2/21:  IYT – Shorted Mar. (3/15) $195/199 bear call credit spread for $.95/share.  Closed half at $.35/share.  3/2:  Mid-point to close is $.15/share, move Stop $190.25, bid $.10/share to close.

2/27:  NWL – Shorted stock at $16.71.  3/1:  Move Stop $16.42.

2/25:  PE – Bought stock at $19.46.  Bullish engulfing Breakout from multi-week consolidation above r20/50-MA daily.  Stop Loss:   $17.77.

2/26:  TGODF – Bought stock at $3.06.   Target high $4s.  3/2:  Move Stop $2.88.

3/1:  ZAYO – Consider shorting under $24.77.  Breakdown daily/weekly after bearish consolidation from 2/11 engulfing bar daily.  Stop $25.77.

 

Options Strategies Definitions Videos Here

 

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Please read the information on Money Management below

Learn how Master Trader Technical Strategies – MTS and MTS with Options Strategies can make consistent money.

Click Here – to Access the Options Credit Spread Program that puts you on the Master Trader Income Path.

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CLICK HERE For a free 3-day complimentary access to the Master Trader Green Room

In the Master Trader Green Room, we trade stocks, options, and ETFs in real-time.

Learn how we scan pre-market compelling Gap Trades and discuss a “plan of attack” to profit.

 

Because your success is vital to you – and us. 

Before selling options or credit spreads, we urge you to review the valuable and detailed information that we have provided for you in your Member’s Area.

You will find it by scrolling to the bottom of the page to Master Trader Subscriber Resources.

The link is Money Management Considerations When Selling Option Credit Spreads for Income.

It explains Master Trader Money Management, Trade Management, understanding the use of Contingent Orders, and much more.

If You’re in a Rush to Start

A quick simplified approach to calculating contract size is to simply base your contract size based on the number of shares permitted in your Trading Plan as if you were trading the stock or ETF.

Simple Share Sizing = $ Risk / Stop Loss

The amount of money that you are willing to risk – divided by – the stop loss amount. For example, $100 / .20 = 500 shares.

Credit Spread example, if your Trading Plan allowed you to trade 543 shares of AAPL based on the stop loss, then simply round down to the nearest hundred and short an equivalent number of contracts of the option.

Since 1 contract represents 100 shares of the underlying, this would be five (5) contracts.

 

Happy trading!  If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com

All the best,

Greg Capra
Managing Director

Dan Gibby
Chief Options Strategist

Follow Greg on Twitter, YouTube, and StockTwits:

Twitter: @GregCapra
Stocktwits: Greg_Capra

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NOTE:  Master Trader will show all trades assuming a 1,000 position for stock, or a 10-lot for options (which represent 1,000 shares of the underlying).  However, this is not a recommendation on proper share size for your particular trading style, risk tolerance, or account balance.  We urge you to calculate your own share size based on your individualized risk parameters, Trading Plan, and familiarity with the proposed trade.

NOTE:  Master Trader and its representatives might have existing positions in these and other trade recommendations before or after suggested herein.  Additionally, we often manage them differently for internal purposes based on different risk parameters than noted herein.